CEO Speak

As we get closer to the end of this calendar year, one reflects …how does one react to a year like 2020 which in many ways does not have any reference point except for “Hope and Positive Mindset”. Closer to our area of expertise, the markets both equity and debt, and the mutual fund industry has also been through some very volatile times.

The S&P BSE Sensex was at 41,952 in January 2020 which fell to a worrisome low of 25,981 circa March 2020. The pandemic and lockdown put the economy and our lives to a grinding halt. A lot of investors were very sceptic around that time and a lot of them moved out of the markets too. We have consistently told all our investors to stay invested if the investment was meant for a specific financial long-term goal.

And we are glad that most of our investors have been matured and have patiently withered the storm. The S&P BSE Sensex hit a high of 44,077 in November 2020, making it a return of 69.65% from the March levels.

It boils down to the fundamentals. “Timing the market” vs “Time in the market”. The latter has always proven to be wiser and has helped in wealth creation for millions of investors over a long period of time. We need to understand that volatility is a part of the market dynamics and also that the economy is far from recovered. There are corporations who have been resilient and growing which is showing its positive impact on the S&P BSE Sensex. At the same time, we are technically into a recession which means two quarters of negative growth and a lot of businesses are struggling to get back to pre-Covid levels. All of us the industry and the investors need to remain patient in these uncertain cycles and stick to the basics of investing: Financial Goal, Risk Appetite and Asset Allocation. However, a positive mindset always looks at opportunities. Investors who were consciously willing to take a bit more risk not just stayed invested but invested more in the S&P BSE Sensex or the set of corporations which have been driving the S&P BSE Sensex up. Index funds work on this principle in the mutual fund space and give the advantage, by being professionally managed, to investors who cannot track such stocks on their own.

In the debt space, with low returns as the interest rates are down, it may be wise to reconsider funds like Resurgent India Corporate Bond Fund (RICBF). We have understood that the debt space also has its associated risks, however, one must also understand and look for avenues that will give them better returns in the debt space without compromising on the quality of papers that the fund is invested into. One relevant alternative which is slowly catching the investors’ attention is good quality, but less liquid securities in AAA/ AA+/AA rating buckets, which may have been disproportionately punished in terms of market pricing following the credit-related fiasco in the past months. While one must take abundant caution as the credit environment still remains challenging, we do believe that funds that offer access to good quality issuers in these higher-rated buckets could be considered by investors who are willing to move up a notch in the risk-reward chain. L&T Resurgent India Bond Fund is well positioned in this space with a pickup of approximately 250 basis points over 3 year PSU yields.

This volatile and tough year has taught us many things, but one thing which stands out is the instinct to survive and the human behaviour to look at opportunities in the face of gloom. One can apply the same logic to their investing styles also.

Source: BSE, Internal

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L&T Resurgent India Bond Fund (An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 years to 4 years)

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